15 Tips To Manage Small Business Finances Successfully

Running a small business often requires you to master many skills, including managing your company’s finances. It can be overwhelming in the beginning, especially if you don’t have a business background. However, you’ll better set yourself, and your business up for success if you can learn some financial basics. You need to do more than just use the top online financial software solutions. Here are the top quick tips to help you better manage your business’s money.

1. Learn Basic Accounting

You don’t need to become a CPA, but there are some accounting basics that every business owner should master. Take an introductory class at your local community college or pick up an accounting book aimed at beginners to learn the ins and outs of general accounting principles, such as:

Investing in accounting software, such as QuickBooks, can also help simplify the process of learning how to manage the books. Keep in mind that there are plenty of Quickbooks alternatives available if you prefer a different system. If numbers just aren’t your thing, consider hiring a bookkeeper or accounting firm to help you keep track of the numbers.

2. Understand Your Seasonal Cash Flow

Many businesses experience seasonal swings in cash flow. For example, accounting firms are busiest during tax season, then slow down in the second half of the year, while a ski repair shop is hopping during the winter months and slow during the summertime. It’s important to understand when your busy and slow times are, and then budget accordingly so you are making major purchases when the money is flowing in and can tighten your belt during the lean times. Depending on your industry, you should also know your sales cycle. For example, if you are a B2B company with sales cycles that last months, or potentially even years, it’s important to plan for these slow periods when you have less income coming in the door.

3. Create An Emergency Fund

It’s important to have an emergency fund that you can dip into if business is slow or an emergency happens, such as a building fire, broken equipment or a major customer stops doing business with your company. As we mentioned earlier, most businesses don’t have consistent sales month to month, they fluctuate. By planning ahead for slow times and unexpected expenses by creating an emergency fund you will help ensure that your business can count on a steady cash flow.

4. Review Your Books Frequently

It’s not enough to learn basic accounting, or hire a bookkeeper. It’s also crucial that you carve out time on a regular basis to personally go through your books. Set aside time daily, weekly or monthly to review your finances to make sure expenditures and income are being properly entered in your accounting software. This time also can provide an opportunity to identify areas where you might be spending too much money, allowing you to tighten your purse strings before you start to fall into a financial hole. And while it’s not pleasant to think about, it can also help you notice red flags for potential embezzling from an employee or your bookkeeper and stop it before it causes serious harm to your company.

5. Be Frugal

Any small business owner, but especially one just starting out, needs to be extremely mindful of every dime they spend. When you have limited capital to begin with, it’s important to examine every potential cost and expenditure before you decided to proceed. Some fixed costs you won’t be able to control, but variable costs should be kept as low as possible. Obviously, you don’t want to skimp on necessities while living frugally, and you want to ensure that you are providing excellent customer service and have satisfied employees. However, the more you are able to cut your costs to the bone, the better your business will be for it, at least until you have built up a significant financial reserve to fall back on.

6. Budget Expenses

When starting out, it’s important to create a list of your projected costs so you can more effectively budget. These include fixed expenses such as:

By creating a comprehensive expense budget, you will have a better idea of how much money you can invest back into the business, and how much to sock away into your emergency fund to help get you through times when cash flow is tight.

7. Pay Yourself

Paying yourself may seem like an obvious step for a business owner. However, a survey by Square found that 38 percent of small business owners don’t allow themselves to draw a salary when they first start out. It could be because they want to invest every extra penny back into the business, or because they simply think they can’t afford it. However, your success is tied to that of your business, so it’s important that you get paid the same as any other employee. Otherwise, why are you even running a business? By collecting a salary, you are helping to grow your personal finances. It can also help you down the road should you need to apply for a business loan, since it demonstrates to banks and other financial institutions that you are committed and confident in the future of your business.

8. Lease Business Equipment

Many small business owners start out by renting the space their business operates in, so it makes sense that you should consider also renting what equipment you can rather than invest a big chunk of your start-up capital in equipment. By renting instead of buying, you are also potentially freeing up cash for other important business expenses (like paying yourself).

9. Avoid Mixing Personal And Business Finances

One common trap many small business owners fall into is using company money for personal expenses, or vice versa. This is known as “piercing the corporate veil.” While it can be tempting to think of your personal and business finances as one pool of money you can draw on as needed, especially if you are the sole employee, it’s never a good idea to mix the two. For one, it can cause confusion when it comes to balancing the books, as well as your own personal records. It can also create tax issues and potentially expose you to personal liability should someone sue your business. Avoid this headache altogether by creating a clear separation from your personal expenses and those of your business, including opening separate bank accounts and credit cards for your business than what you use for your personal finances.

10. Pay Your Taxes

Unlike consumers, businesses need to pay taxes on a quarterly basis. In addition, if you have employees, you’ll also need to pay any federal income tax withheld from employees, employer and employee social security and Medicare taxes, and federal unemployment taxes on either a semi-weekly or monthly schedule. While it can be frustrating to have to hand over money to the government every three months, it can be easier in the long run than trying to budget for one lump sum payment at tax time. Understanding the rules and regulations can be confusing, especially when you’re first starting out, so you might want to consider hiring an accountant to help you file your taxes, at least in the beginning.

11. Negotiate With Vendors

Researching and choosing which vendors to work with is a time-consuming process and can lead many new business owners to blindly agree to whatever terms a vendor presents. However, just like when buying a new car, there is often a little wiggle room built in to the price a vendor quotes you for their services, so don’t be afraid to negotiate for a better price. For example, if you run a B&B and need to have daily laundry service, ask if you can receive a discount based on the fact that you will be giving them your business on a regular, ongoing basis. Review contracts thoroughly before you sign to make sure you understand the full terms, including payment terms, and what the penalties are for late payments. Speaking of late payments…

12. Pay Bills On Time

You should be treating the bills for your business just the same as you would your mortgage payment or credit card bill. That means paying them on time, every time. Should you fail to do so, you could quickly find yourself getting hit with late fees from utility providers, vendors, and credit card companies. Failing to pay your business taxes on time can also result in penalties, and could lead to more trouble with the IRS down the road if you continue to fall behind. Do whatever it takes to make sure you don’t get behind on payments, such as entrusting your bookkeeper to stay on top of the bills, or setting calendar reminders for yourself. Especially if your profit margins are slim, avoiding costly late fees can mean the difference between ending the year with a profit or a loss.

13. Buy Business Insurance

Just like likely have insurance to protect your home or your car, you should also consider purchasing business insurance to protect your company in case something goes wrong. The type of policies you might need will vary by industry, but most businesses can benefit from general liability insurance. Also known as “slip and fall” insurance, this policy protects against expenses if a vendor or customer is injured at your business, or if you accidentally cause damage to a third party. Other polices you might want to consider purchasing, depending on your business needs, include:

● Commercial liability insurance, which protects against professional errors
● Property insurance, to cover damage or theft to business property
● Workers’ compensation insurance, which can pay for an injured employee’s medical bills
● Cyber liability insurance, to protect against the costs associated with data breaches
● Commercial auto insurance, which covers costs if a third party is injured by a company vehicle

Talk to your insurance agent to find out what policies make the most sense for your particular business.

14. Plan For Retirement

If you’ve ever worked for an employer, there’s a good chance that they offered some type of retirement plan. When you are your own boss, it’s up to you to make sure you’re putting aside money to take care of your financial needs once you retire from the workforce. There are three types of retirement plans that tend to work best for small business owners. Which one is right for you will depend on your business, such as if you are a sole proprietor or if your company has employees. The three basic types ideal for most small businesses are:

● Self-Employed 401(k) plan. This is a tax-deferred retirement plan for self-employed individuals. It offers generous contribution limits but is only meant for businesses with employees who have an ownership interest.
● Simplified Employee Pension Plan (SEP IRA). This plan is designed for sole proprietors and small-business owners with any number of employees. Contributions are made solely by the employer only and are a tax-deductible business expense.
● SIMPLE IRA. This plan functions much like a traditional 401(k) and is for businesses with 100 employees or less and is funded by pre-tax employee contributions and tax-deductible employer contributions.

If you aren’t sure what plan is right for you, talk to a financial advisor to review your options.

15. Research Business Financing Options

Unless you’re independently wealthy, you most likely are going to need to obtain some type of business financing. This is crucial to get your company off the ground, and/or keep it running. You can save yourself money and aggravation by taking the time to evaluate the different types of financing options available, such as small business loans. Instead of walking into the nearest bank and applying for a loan, be sure to take your time and explore all avenues to determine which one will net you the money you need at the lowest interest rate.

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